Major news in the short sale and housing industry! On Friday, March 9, the Obama Administration announced updates to the Home Affordable Foreclosure Alternative (HAFA) program. Created in 2009, HAFA is a government-sponsored initiative assisting all Home Affordable Modification Program (HAMP) eligible homeowners in avoiding foreclosure through short sales and deed-in-lieus.

The HAFA updates will go into effect on June 1, 2012, and will allow more distressed homeowners to seek assistance. Most importantly, the deadline for submitting for HAFA eligibility will be extended a full year, from December 31, 2012, to December 31, 2013.

Other major changes from March's updates to the HAFA program include:

• The removal of occupancy requirements. Previously, HAFA required homeowners to have lived in the property within the last 12 months.
• $3,000 relocation incentives will be limited to properties occupied by an owner or tenant at the time of the short sale.
• Mortgage payments will be allowed to exceed 31% of the homeowner's gross monthly income. This update will allow a homeowner to stay current on her mortgage and still qualify, minimizing the overall impact to her credit.
• Secondary lienholders may receive up to a maximum of $8,500, up from $6,000 previously.
• And one of the most dramatic changes: The Credit Bureau Reporting will be Account Status Code 13 (paid or closed account/zero balance) or 65 (account paid in full/a foreclosure was started), as applicable.

With these updates, a homeowner can be current on their mortgage, qualify for HAFA, continue to make their payments, and execute a short sale with minimum impact on their credit!

Is Your Mortgage Out of Balance With Your Budget?

This scenario can happen quickly.  An expensive car repair, illness, job loss and your finances begin to feel out of balance.   No one is immune from the housing crisis in this country.  The foreclosure crisis has hit every income, every region and every education level.  Take a look at these numbers:

·         Number of consecutive years home prices have fallen:  5

·         Number of homes lost to foreclosure since 2007:  7.9 million

When you find yourself in financial distress because of an unaffordable mortgage you DO HAVE OPTIONS.  REMEMBER:  DOING NOTHING DOES NOT SOLVE ANYTHING!

Foreclosure results from non-payment of a mortgage and is the final step in a delinquency proceeding.  Far too often, homeowners don't reach out for help.   The fact is foreclosure almost never needs to happen-especially today. 

If you would like to receive a list of your options to avoid foreclosure I've be happy to email, fax or mail upon your request, a detailed list of 8 options to foreclosure.  Email:  Stephanie@acgproperty.com or call direct:  612-242-8747.

It was just last spring that M Johnson made the hardest decision of her life as she and her husband Rick were caught in the vise of the housing bust.

Wanting to downsize their lives as they headed toward retirement, they bought a new house in Maple Grove MN, before they sold the old one, also in Big Lake Minnesota. Their previous home had been appraised at nearly $400,000 at the height of the market, but as the housing crisis ravaged Minnesota, they were told they'd be lucky to get $200,000 for it.

They were carrying a loan of $260,000 on their original home alone, meaning they were well 'underwater,' owing much more than it was worth. Combined with the mortgage on the new house, their housing payments had become an "anchor around our necks," she says, threatening to gobble up all their retirement savings and leave them with nothing.

The couple made a difficult call: They would do a 'strategic default,' and simply stop paying the old mortgage. "We really had to wrestle with it," said Johnson, 60. "We had worked all of our lives to build good strong credit, and we're proud people. But it came down to, 'Can we keep doing this?' We had to say 'No.'"

As the housing bust drags on, many homeowners are thinking like the Johnsons. Almost 11 million homes are now underwater, says financial information provider CoreLogic. Around 3.5 million homeowners are behind in their payments and another 1.5 million homes are already in the foreclosure process, according to online marketplace RealtyTrac.

As banks start to work through their backlog of distressed properties, the New York Federal Reserve estimates that 3.6 million foreclosures will take place during the next couple of years.

So, the question is: Does it make sense to keep paying a massive mortgage, knowing that it might be decades before a home regains its prior value? Or is that akin to - as columnist James Surowiecki recently wrote in the New Yorker - "setting a pile of money on fire every month"?

"I constantly get the saddest e-mails from people saying, 'I've exhausted all my life savings, my retirement is gone, and now I have to default,'" said Jon Maddux, CEO of YouWalkAway.com,
a foreclosure agency that helps clients with strategic default (and charges a fee for it). "But if they had seen the writing on the wall a couple of years earlier, stopped paying the mortgage and stayed in the home throughout the whole process, they would be in a much better financial position."

Moral Quandary

There's a moral component to that decision, of course. People naturally feel embarrassed about breaking a contract and not paying their bills; no one wants to be branded a deadbeat. But remember that companies default on their obligations when it makes financial sense for them to do so, via the bankruptcy process. Even the Mortgage Bankers Association itself, in a flourish of irony, arranged for a short sale of its Washington headquarters.

It's not personal; it's business. So think of strategic default as a business decision, and do a cold-eyed cost-benefit analysis of whether it makes sense for you, advises Carl Archer, an attorney with Maselli Warren in Princeton, New Jersey.

"People think it reflects on their integrity, and say 'I wasn't raised this way,'" said Archer. "But the more businesslike attitude is to say that there's a contract, there are penalties for violating that contract, and sometimes it just makes financial sense to break it."

The penalties largely revolve around your credit record, which admittedly gets blown up in the near-term. For a few years you can likely forget about qualifying for a mortgage or a car loan. When lenders are ready to take a chance on you again, you'll have to pay for the privilege, with stiff interest rates due to your default history.

What Happens to Scores

M Johnson watched her credit score go from a pristine 800 to 685, dropping every time she missed a payment. Credit-scoring firm FICO estimates that someone with a 680 score would see that number sink between 85-100 points after a strategic default, and someone with 780 could crater 140-160 points.

Not desirable, of course, but not the end of the world either. For Johnsons, for instance, she already had a loan on her Ford Focus, and the mortgage on her new house, before she even started the default process. She hasn't seen any changes on her credit cards since, in terms of limits or interest rates.

Now that the previous home was auctioned off in December, she can start slowly rebuilding her credit, a process that should take about seven years.

Strategic default isn't a decision to be taken lightly, of course. If everyone did it, the housing market -- and the banks -- would be in much worse shape than they already are.

The following are some of the issues to keep in mind:

1. Look to it as a last resort, not a first option. Your financial troubles could be alleviated with a simple refinancing, especially since 30-year mortgage rates are near record lows of below 4 percent. If the banks are hesitant to rework your loan, look into the number of government programs designed to keep you in your home, which can be researched at MakingHomeAffordable.gov.

2. Consider a Short Sale vs. walking away.  If a homeowner owes more on their property than it is currently worth, then they can hire a qualified CDPE (Certified Distressed Property Expert) Realtor to market and sell their property through the negotiation of a short sale with their lender (this is a process in which the lender agrees to settle on the debt for less than what is owed).  This is by far a much better option than walking away from the mortgage.  To learn more about the short sale process visit a website created to answer your questions:  www.ShortSaleAcuity.com

3. Location, location, location. Each state has its own rules and regulations regarding foreclosures, which affect both the length of the process and what you could be liable for in the end. In so-called 'non-recourse' states like Arizona, California and Texas, a lender cannot come after you for any deficiency (for instance, if your mortgage was $300,000 and they're only able to sell the property for $200,000). In other states they can pursue the difference, in theory - which is why some homeowners opt to file for bankruptcy, to free themselves from those potential obligations as well.

4. Use the interim to save like a demon. If you're in a state like New York or Florida, which require a judicial review of every foreclosure, it might be a couple of years before you actually have to pack up. In the meantime, be extremely disciplined about stockpiling cash. That will help you with a down payment for a rental, to pay for a car in cash if you need to, or to clear up other debts you might have. "Save money as if you were still paying the mortgage," says Archer. "If you don't, then you'll run out of both time and money, and then you'll be in a real tough spot."

5. Know the tax implications. Historically, if you have a debt that's forgiven, the canceled amount is considered taxable by the IRS. In the wake of the housing bust, though, the Mortgage Forgiveness Debt Relief Act was drafted to spare you those taxes. That legislation expires at the end of 2012, though - so if it's not extended, you could potentially face a tax bill for the difference.

6. Talk to a professional. A bankruptcy or real-estate attorney can help you through a very tricky process. The National Association of Consumer Bankruptcy Attorneys, for instance, has a searchable database of lawyers at www.nacba.org.

 Provided by: Stephanie Danielson, Broker/Owner (CDPE Certified)

Acuity Group Real Estate Professionals

601 Main St. Elk River MN 55330

Office:  763-633-3535

www.ACGProperty.com

 

Stephanie Direct: 612-242-8747 or Stephanie@ACGproperty.com

 

Acuity Group Specializes in Traditional Buyer/Seller Transactions, Short Sales, Investment Property Consulting and Management, Rentals and Property Management.

Traditional Listings, Buyer Representation, Short Sale Listing Experts, Certified Distressed Property Consultants & Specialists serving the following Minnesota Cities: Elk River MN, Zimmerman Minnesota, Big Lake MN, Rogers Minnesota, Otsego, MN, St. Michael Minnesota, Albertville MN, Princeton MN, Ramsey Minnesota, Anoka MN, Nowthen Minnesota, Monticello MN, Otsego MN, Oak Grove MN, Burns Township Minnesota, Monticello MN, Champlin Minnesota, Dayton MN, Hassen Township Minnesota, Coon Rapids MN, Blaine Minnesota, Fridley MN, Oak Grove MN, St. Francis Minnesota, Livonia Township MN, Andover MN, Becker Minnesota, Baldwin Township MN, Orrock Township, Minnetonka, Chanhassen, Chaska, Excelsior, Wayzata, Plymouth, Maple Grove, Golden Valley, St. Louis Park, Hopkins, Edina, Eden Prairie, Crystal, New Hope, Bloomington

 

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